This paper describes the emerging debate on efficiency and program quality in rural schools, explores the strengths and weaknesses of rural district consolidation, and suggests policy options for redesigning rural education. An examination of economic trends, demographics, and philosophical changes regarding rural education's purpose puts educational changes into context. Increasing diversity in various areas of rural life tends to complicate educational planning and policy-making. The data suggest that there is no single future for rural America and its schools, but many different futures. Consolidation advocates argue that bigger schools mean better programs, but the evidence does not support contentions that educational quality is a function of size. Greater efficiency can be achieved by reducing costs or by raising output and its quality. False efficiencies are achieved by cutting costs and reducing quality. The challenge for rural schools is to offer not just standardization, but positive learning environments, as evidenced by a wide array of indicators. While measuring efficiency is difficult, successful small schools have taken steps such as establishing low pupil/teacher ratios, offering strong core curricula, hiring competent generalist teachers, and using local resources. Redesigned schools would be different from existing models in all respects, including governance, administration, mission, staff, curriculum, scheduling, and organization. The document describes experimental redesign programs in different parts of the country. Its recommendations include: (1) financing that is sensitive to local peculiarities; (2) incentive grants for local pilot initiatives; (3) appropriate instruction for school staff; and (4) encouragement for collaborative projects. (TES)